Rollo, F.A. v Morrow, P.D
[1992] FCA 513
•17 JULY 1992
Re: FREDERICK ARTHUR ROLLO
And: PAUL DAMIEN MORROW; CATHERINE ANNE MURPHY and JOSEPH RACE EASTMURE
No. N G785 of 1991
FED No. 513
Income Tax - Administrative Law
(1992) 92 ATC 4364
(1992) 23 ATR 477
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Gummow J.(1)
CATCHWORDS
Income Tax - release from liability to pay tax - "serious hardship" - exercise of discretion - Income Tax Assessment Act 1936, s. 265.
Administrative Law - procedural fairness - oral hearing - whether necessary.
HEARING
SYDNEY
#DATE 17:7:1992
Counsel and Solicitors
for the Applicant: Mr R.J. Bainton QC and
Mr S.J. McMillan instructed by Messrs J.W. Walker and D.K.L. Raphael
Counsel and Solicitors
for the Respondent: Mr Alan Robertson instructed
by the Australian Government Solicitor
ORDER
THE COURT ORDERS THAT:
1. The application is dismissed.
2. The applicant pay the costs of the respondent.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This is an application for an order of review under the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") to review the decision of the respondents, constituting the Taxation Relief Board ("the Board"), made on 6 November 1991, pursuant to s. 265 of the Income Tax Assessment Act 1936 ("the Tax Act"). The decision was that relief should not be granted from any liability of the applicant to income tax and additional tax assessed and payable by him in respect of five years of income, 1979-1983 inclusive.
The Board was satisfied that payment of the full amount of tax would cause the applicant serious hardship, but it decided to exercise its discretion against the grant of relief. The applicant accepts that the finding of a serious hardship did not oblige the Board to exercise its discretion in favour of the applicant; see Powell v Evreniades (1989) 21 FCR 252; Van Grieken v Veilands (1991) 103 ALR 233 at 236.
On 16 May 1988 the applicant made a declaration in support of his application under s. 265. An examination of the applicant on oath was conducted on 29 November 1989 by a "designated person", within the meaning of provisions in s. 265 to which I will later refer. A written report on the examination, dated 29 November 1989, was sent to the Board. On 23 April 1990 the Board, whilst concluding the payment of the full amount of tax would cause serious hardship, decided against a release from any of the tax liability. An application for an order of review under the ADJR Act was then instituted in this Court by the applicant (matter number G690 of 1990). On 12 April 1991 the proceeding was settled by consent orders. These set aside the decision of 23 April 1990 and remitted the application under s. 265 to a differently constituted Board, for reconsideration. Counsel for the respondents in the present application makes the point that although there have been two proceedings in this Court, they have been concerned with the one application by the applicant under s. 265 of the Tax Act. After the disposal of the first proceeding in this Court, the application proceeded before a differently constituted Board, whose decision on 6 November 1991 is the subject of the present application.
The decision of the Board of 6 November 1991 was communicated to the applicant by a 4 page letter. The Board began by listing as items (a)-(n) certain information it had taken into consideration. The Board continued by saying that it had "noted" further material which it identified as items (i)-(xvi). These set out a number of facts. They include an itemisation of the amount for relief as $1,786,916.85 in respect of the tax years 1979-83 inclusive. Sums for additional tax for late payment and for late lodgment are included. The tax liability arose as a result of an investigation into the applicant's affairs, and it appears that each of the assessments was made under the default assessment provisions of s. 167 of the Tax Act. He had established "structures" which he had believed, so he maintained, validly "removed" the tax liability the subject of the assessments.
At the time of the decision of the Board the applicant was 45 years of age. He had been an officer of the Taxation Office. In 1978 he had gone into private practice as a business consultant and registered tax agent. Until 28 June 1991 the applicant had been employed as a tax consultant by Deloitte Ross Tohmatsu.
The final passage in the Board's letter of 6 November 1991 was in the following terms:
"In deciding to exercise its decision not to grant you relief, the Board formed the following views:-
(1) as a registered tax agent and as a tax consultant, you would have been expected to have a sound knowledge of the income tax laws and your obligations under those laws to make provision to make payment of your liability;
(2) whilst you have made offers of payment and offers of settlement, you have not made any payments towards your liability;
(3) you have a demonstrated ability to earn large sums of money in your chosen field, irrespective of any action of the Commissioner to institute bankruptcy proceedings against you;
(4) you do not appear to have taken any action to recover amounts owed to you that could be used to reduce your debt;
(5) it had some difficulty in accepting that you have no assets given that you borrowed substantial funds in your own right from associated entities (and those entities, over which you apparently had control, had also borrowed extensively) without repayments being made; and
(6) the borrowed funds have not been repaid and indeed, these have been written-off as irrecoverable."
The present proceeding was instituted on 6 December 1991. On 25 February 1992 the Commissioner of Taxation caused to be issued a bankruptcy petition against the applicant. I was told that this has been stood over pending the outcome of this application.
In the amended application, filed 17 March 1992, the applicant puts forward various grounds. They are:
1. breach of the rules of natural justice,
2. the taking into account of irrelevant considerations,
3. the lack of evidence or other material before the Board which could justify findings (3), (4) and (5) which I have set out above,
4. failure to take into account relevant considerations,
5. Wednesbury unreasonableness, and
6. failure by the Board to observe procedural requirements said to be laid down by sub-s. 265(3), (5) and (9) of the Tax Act.
Sub-section 265(3) provides that where an application is made for release in respect of an amount of tax which is not less than $10,000 the Board shall refer the application to the Administrative Appeals Tribunal ("the AAT") and shall notify the applicant in writing of its having done so. The President of the AAT designates the Registrar or a Deputy Registrar of the AAT to be a "designated person" (sub-s. 265(4)). The applicant may appear before that designated person or may be required to do so by the designated person, for examination upon oath or affirmation concerning any statements which the applicant has or desires to have placed before the Board (sub-s. 265(5)). A record shall be made of the information elicited by the designated person during the examination (sub-s. 265(8)). Sub-section 265(9) provides that the designated person shall submit a report to the Board upon the facts disclosed by the examination together with the record referred to in sub-s. (8) and draw the attention of the Board to the facts which in the opinion of the designated person have particular bearing upon the application.
I turn first to consider the ground of review that these requirements of s. 265 were not observed.
The applicant contended that the report of his examination on 29 November 1989 was not before the Board. The facts show that it was before the Board in making its decision of 6 November 1991. Then it was said that there should have been a fresh report after the consent orders had disposed of the first proceeding in this Court. By letter dated 1 July 1991 the applicant had enquired of the Board whether it was proposed to seek a fresh report from the AAT which would necessitate the attendance of the applicant for a new examination. In response, the Board notified the applicant by letter dated 24 July 1991 that it had decided not to seek a further report, but to have regard to the existing report. In my view, there was no reason, in the terms of s. 265, requiring the repetition of steps already taken in compliance with sub-ss. (4), (5), (8) and (9).
Then it was submitted that there had been no compliance by the designated person with the requirement of sub-s. 265(9) that there be submitted a report to the Board upon the facts disclosed by the examination, together with the record made of the information elicited by the designated person during the examination, pursuant to sub-s. 265(8).
A five page document of 29 November 1989 signed by the designated person is headed "Report on Examination" and has various attachments. They include a 23 page document headed "Application for Release", in which various particulars have been completed, apparently in the handwriting of the applicant. There are notations throughout the document in the writing of the designated person, which reflect information elicited during the examination. The procedure adopted at the examination is described as follows in the Report:
"The applicant completed a questionnaire which is attached. At the commencement of the examination the applicant confirmed that the information contained in the questionnaire was to the best of his knowledge true and correct and that all relevant information had been included. The notations made in the margin on the questionnaire were made by me during the course of the examination of additional information supplied relevant to the item in question."
In my view, there was compliance with sub-s. 265(9) by submission of a report to the Board together with a record of the information elicited during the examination. It is true that a sound recording was made at the examination and that this was retained by the AAT. But that circumstance does not negative the character of the attachment to the report as a record made of the information elicited during the examination, within the meaning of the legislation. There is no requirement in sub-s. 265(8) that the record be in a particular form.
It was contended that the requirements of procedural fairness, in the circumstances of the case, obliged the Board to give to the applicant an opportunity to give further evidence on oath, rather than to be content with written submissions. In England, there perhaps has been a greater emphasis than in Australia upon the importance of an oral hearing: Lloyd v McMahon (1987) AC 625 at 696, 706, 714; Craig "Administrative Law", 2nd Ed., 1989, pp 218-219; Wade "Administrative Law", 6th Ed., 1988, pp 543-544. However, as Aickin J pointed out in Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487 at 513-514, the principles of natural justice do not comprise rigid rules and "fairness" may be satisfied by different procedures even by the same statutory authority in different circumstances. The situations in which an opportunity for an oral hearing is to be given, lest natural justice be denied, are further discussed in Daguio v Minister for Immigration and Ethnic Affairs (1986) 71 ALR 173 at 179; see also Allars "Introduction to Australian Administrative Law", 1990, para. 6.73. In the present case, when the surrounding circumstances are examined, it is clear, in my view, that written submissions were sufficient.
In his letter of 1 July 1991 the applicant had complained of what he called "secret submissions" put by the Taxation Office to the designated person who had made the report of 29 November 1989. However, copies of the materials which were before the Board as originally constituted, together with papers referred to the current Board by the Taxation Office, now were made available to the applicant. On 29 July 1991 he wrote to the Board acknowledging the provision of these documents and stating that he would take advantage of the opportunity to make a submission regarding various issues of fact, law and natural justice inherent in the Taxation Office material.
In addition, by letter to the applicant dated 1 August 1991 the Board sought further information in relation to the application. The information sought included the present employment situation of the applicant and his wife, their fortnightly income and expenditure and details of their current assets and liabilities. Profit and loss accounts and balance sheets were sought for various trusts and companies, in some cases for the years ended 30 June 1984 and 1985, and in other for the years ended 30 June 1984 to 1986. Counsel for the applicant complained that balance sheets and profit and loss accounts were not sought for subsequent years.
The Board pointed out, in its letter of 1 August 1991, that whilst its members were not empowered to administer oaths, it would take into consideration details set out in the written submission which the applicant might make. The applicant availed himself of that opportunity. His submission is comprised in three letters, of 6, 8 and 30 August 1991, with attachments.
One reason for the Board not seeking particulars for the trusts since 1986 may be found in the 32 page written communication by the applicant to the first Board on 6 April 1990. This included the statement that none of the trusts had operated since at least 1986 and that they were, for all practical purposes, defunct. That material was, of course, before the second Board.
When all these circumstances are taken into account it is, in my view, plain that the applicant was afforded ample procedural fairness by the Board and that there was no call for oral representations or evidence.
Next, the applicant submitted that the Board had taken into account irrelevant matters in the exercise of its discretion, having made the finding of serious hardship, not to grant relief to the applicant, wholly or in part, of his liability. The irrelevant matters were said to be those set out in paras. (1), (2) and (6) in the final passage of the Board's letter of 6 November 1991. I have set this out earlier in these reasons. In my view, given the width of the discretion which was being exercised by the Board, it was not irrelevant to have regard to these matters.
It also was submitted that there had been a failure to take into account relevant matters. One of these was the accrual of additional tax. But it is quite plain from the materials before the Board what the accruing additional tax would have been, and it would be wrong to attribute to the Board ignorance of the continuing accrual of additional tax. Another relevant matter allegedly not taken into account is that the applicant had made offers to the Commissioner of Taxation to pay "an amount in respect of the amounts due by the Applicant to the Commissioner", that such offers had been rejected by the Commissioner, and "at no stage had the Commissioner made any counter offer". In my view it was not incumbent upon the Board to take into account such attempts by the applicant to reach a settlement of his debt. But, in any event, details of so called offers of settlement are recounted in documents to which the Board did have regard.
Reliance also was placed on para. 5(1)(h) of the ADJR Act. This provides for a ground of review that there was no evidence or other material to justify the making of the decision. This ground shall not be taken to be made out unless, inter alia:
"The person who made the decision based the decision on the existence of a particular fact, and that fact did not exist."
That follows from para. 5(3)(b) of the ADJR Act.
The particulars given of the reliance upon this ground of review identify three of the six "views" set out in the final passage of the Board's letter of 6 November 1991. They are those numbered (3) (demonstration of ability to earn large sums of money in the applicant's chosen field irrespective of any action of the Commissioner to institute bankruptcy proceedings), (4) (apparently no action taken to recover amounts owed to the applicant which could be used to reduce his debt) and (5) (difficulty in accepting that the applicant has no assets given borrowings of substantial funds from associated entities without repayments). The relevant "views" are expressed in fuller language but I have endeavoured to extract their substance.
A decision will be based on the existence of a particular fact if that fact is seen to be critical to the making of the decision. It is not necessary to identify some singular particular fact which may be said to be the foundation of the decision. These propositions were explained by Black C.J., speaking for the Full Court in Curragh Queensland Mining Limited v K. Daniel (14 February 1992, unreported). His Honour also said:
"A small factual link in a chain of reasoning, if it is truly a link in the chain and there are no parallel links, may be just as critical to the decision, and just as much a fact upon which the decision is based, as a fact that is of more obvious immediate importance. A decision may also be based on a finding of fact that, critically, leads the decision-maker to take one path in the process of reasoning rather than another and so to come to a different conclusion. If a decision is in truth based, in the sense I have described, on a particular fact for which there is no evidence, and the fact does not exist, the decision is flawed whatever the relative importance of the fact."
The Commissioner issued a bankruptcy notice against the applicant in the sum of $1,854,864.53 on 7 December 1990. Two weeks later, on 21 December 1990, the applicant, at his request, conferred with officers of the Taxation Office and told them that if made bankrupt Deloittes might keep him, or he would work for a medium sized firm in their back-room, or for a corporation, or he would work in an advisory capacity where he did not need to be a tax agent. In his examination by the designated person on 29 November 1989, the applicant stated that the relatively high salary received by him had to be considered, when looking at the question of serious hardship, in the light of the substantial amount of tax liability. He said that any prospect of obtaining an even higher salary was limited until such time as the tax liability was resolved; the offers of settlement he had made in relation to his liability had exceeded his current ability to repay "on the basis that if that liability is resolved (the applicant's) marketability in the tax industry would increase with a result in increased salary thus enabling (the applicant) to then pay the required amounts". Thus, there was evidence and material before the Board which would justify the formation of view (3).
As to view (4), the submission, as I understood it, was not that the finding that the applicant did not appear to have taken action to recover amounts owed to him, which could have been used to reduce his debt, was wrong, but that it did not represent what was said to be the whole picture. Nor, as I understand it, was it disputed that the applicant had borrowed substantial funds from associated entities without repayments being made. The Board did not infer from this a conclusion that the applicant had no assets. Rather, the Board indicated some difficulty in accepting that proposition. Finally, in my opinion, para. 5(3)(b) of the ADJR Act would not apply to the remaining statement of view, that in para. 5. It does not state a factual finding.
The discretion was one to release the applicant from his liability, wholly or in part. The Board decided not to grant the applicant relief. It was submitted that the Board is to be taken as not having directed itself to the possibility of giving partial relief, so that its discretion miscarried. However, the Board stated that it took into consideration various information including the Report by the designated person dated 29 November 1989. It is there apparent that the applicant was seeking a release "at least to a level which he could afford to pay by instalments ...". The Report continues with the passage:
"The applicant stated that he did not necessarily expect that the Board would be satisfied that it would be appropriate to grant him a full release however he believes that a partial release is appropriate to an amount which he could repay by instalments of $1,000 per month over 3 years."
I accept the submission that the Board took this material into consideration and it should be inferred that it exercised its discretion accordingly in denying to the applicant any release at all from his liability.
There remains one final ground on which an order of review is sought. This is Wednesbury unreasonableness. It is said that the decision denying the applicant any release of his liability was so unreasonable that no reasonable person could have so exercised the power given the Board by s. 265 of the Tax Act. The Board said it was satisfied that payment of the full amount of tax would cause serious hardship, but that did not mean that the exercise of its discretion against the grant of relief thereby was unreasonable within Wednesbury principles. This ground of review was considered, in the context of s. 265 of the Tax Act, by Hill J in Powell v Evreniades (supra at 260). His Honour described the decision the subject of the application for an order of review in that case as being within the range of the spectrum in which the decision could not be described as unreasonable. The present submission was, in substance, that the exercise of the discretion by the Board was so out of proportion in relation to the scope of the discretion as to require intervention on administrative review; see Fares Rural Meat and Livestock Co Pty Ltd v Australian Meat and Live-stock Corporation (1990) 96 ALR 153 at 167-168.
In Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 at 41-42, Mason J observed that in reviewing an administrative decision on this ground the Court should proceed with caution lest it exceed its supervisory jurisdiction and give effect to a review of the decision on its merits. The materials before me indicate that the Board took into account a large range of matters. They included the circumstances that the applicant and his wife were presently unemployed and that the applicant was in receipt, as his only income, of a Jobsearch Allowance of $486.00 per fortnight. The Board also took into account that the net family assets at 8 August 1991 was $273,648. It was, in the circumstances of this case, open to the Board to look to the family assets rather than those owned solely by the applicant; see Van Grieken v Veilands (supra at 235).
If the present decision involved a review on the merits, then a different result might well follow. But on an application for administrative review I cannot conclude, in all the circumstances, that the decision is to be impeached by application of the Wednesbury principle.
The application will be dismissed with costs.
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